8854 for income under $50K?

[edhazer]

My wife abandoned US permanent residence in 2012 in order to become a Canadian permanent resident together with me. I am a US citizen/canadian landed immigrant.

We file Canadian and Quebec taxes, but because of my US status also have to file US taxes. So far the foreign earned income exemption has exempted us of owing in the US as a couple. If I cannot file together with my wife, however, I exceed the exemption.

Questions: 1) Can we still file as married couple in the US using a normal 1040 form instead of an NR form?
2) Does my wife have to file form 8854 and for how long? She was a US permanent resident for almost 20 years.
3) Can we still claim the foreign earned income exemption for 2?
4) Can I continue to include my wife on FBAR filings?

[nelsona]

Before I answer your questions, there are a couple of issues that should be considered.

Whether you file married jointly of married separately, YOU have the same foreign earned income exemption limit, which is in the $90K range. So I'm not sure why you say that your situation would have changed becuase you might now file separately.

1. You will always have to file using 1040. You can always choose to have your spouse join you on the return, but it is rare when this will reduce your US taxes, as you should not owe any US taxes in any case.
2. Your wife, when FORMALLY abandonning her GC (did she do this with form I-407?) must adhere to the expatriate rules in place when she abandonned. At the very least she needs to go over the requirements for 8854, and file for one year, along with at a minimum filing US taxes for the year she abandonned.
3. You can, but as I said above, that wil not change your tax situation. neither of you, shuld owe any US tax (unless you have considerable US income
4. You can. but why would you? You will soon see that there will be many instances when you will wnat things in your wife's name only to avoid having to report them on the varous forms that IRS is making for foreign accounts.

So, you need to re-examine how you are filing your separate 1040 and make sure that you are doing this corectly. Rememebt that 2555 only applies to wages. Form 1116 is used for all other income, and you will have more than enough Cdn/QC taxes left over to elimintae your US taxes.

[exPenn]

Note that you can still claim your wife as an exemption on 1040 line 6b, provided she has no US sourced gross income.

[nelsona]

Sure. But as I said, such tax reduction measures really only matter if one has US-source income.

This personshould be looking at filing corrctly from the start, and not owe any taxes by doing the simplest return possible.